TMI Blog1982 (2) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... as further been stated that the said Maharajkumari was a director of the said company and as part of her duties, she used to undertake movements between different towns of India and outside, that apart, it has been stated that although the registered office of the said company was in Calcutta, the said Maharajkumari normally resided in Gangtok (Sikkim) and Kalimpong. It was also the case of the said company that in the past the said Maharajkumari had never charged any travelling expenses up to Calcutta and she was being paid a salary of Rs. 1,000 per month initially but as during the period of 1968-69 she found the work to be extremely heavy and tiresome, the directors and the shareholders of the said company were requested informally in the first instance by her to increase the remuneration by adding a further sum of Rs. 1,000 per month and a share of profits. She also requested for facilities for medical treatment on the amounts which would be actually spent if any illness occurred during the course, of her duties as a director of the said company. On such request, on or about 8th January, 1970, the said company passed a resolution whereby an increase in the remuneration of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated 11th September, 1971, was sent to the ITO concerned stating that as per the last year's (returns) deduction had been claimed on account of the medical expenses of the director, viz., the said Maharajkumari, and for such purposes a detailed statement of the necessary expenses, for consideration of the ITO concerned, was also filed. At that, the said company received two notices both dated 22nd February, 1976, issued by the ITO concerned, respondent No. 1, under s. 154 of the said Act for the assessment years 1970-71 and 1971-72 whereby the said officer asked the said company to show cause why the concerned order of assessment should not be rectified as, in his opinion, there was a mistake apparent from the record. It has also been stated that, thereafter, the said respondent passed two orders both dated 5th July, 1976, under s. 154 of the said Act and thereby disallowed the medical expenses. In fact, a sum of Rs. 1,69,882 was disallowed for the relevant assessment year 1971-72 against which a sum of Rs. 1,76,755, as mentioned above, was ordinarily allowed in the year under s. 143(3) of the said Act. As such, for both the assessment years 1970-71 and 1971-72, the said company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned. For the purposes of the section, (a) where income chargeable to tax has been under-assessed; or (b) where such income has been assessed at too low a rate; or (c) where such income has been made the subject of excessive relief under the said Act or under the Indian I.T. Act, 1922; or (d) where excessive loss or depreciation allowance has been computed, are deemed to be cases where income chargeable to tax has escaped assessment. On a construction of the provisions as mentioned above, Mr. Bajoria claimed that a reopening would be possible, firstly, on new information, if any, and, secondly, if on the date of notice, any income had escaped assessment. None of the requirements as mentioned above, according to Mr. Bajoria, could be satisfied in this case and there was a rectification proceeding in the meantime where the assessee lost initially, but, on appeal, has s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... happened through mistake or inadvertence. It has further been stated that on detection of such mistake, the assessee was requested to treat the demand notice as withdrawn and cancelled. On the basis of and in view of the pleadings as noted hereinbefore, Mr. Bajoria sought to impeach the initiation as made, and so also the notice, to be void, bad, illegal, irregular and without any basis or reasons as, according to him, from the statements as made or as contained in the affidavit-in-opposition of the respondents, such initiation of proceeding or the issue of the notice, was either on information as received or on formation of the belief, on the basis of information from external source like " Revenue Audit " and not of his own by the officer concerned or merely, the said officer had acted on a change of opinion. He specifically claimed that it was not possible or permissible for the officer concerned to act on the information as received from the internal audit or to act on their advice, as the opinion of or by such internal audit, could (not ?) be regarded as " information " within the meaning of s. 147(b) of the said Act. In support of such submissions, reference was made to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im to take action under s. 147(b). On appeal by the Revenue, the Income-tax Appellate Tribunal, Delhi Bench, noticed a conflict of judicial opinion on the question whether the internal audit report could be treated as "information " for the purpose of s. 147(b). The Gujarat High Court in Kasturbhai Lalbhai v. R. K. Malhotra, ITO [1971] 80 ITR 188, had held that an internal audit report could not be regarded as " information ", while the Delhi High Court in CIT v. H. H. Smt. Chand Kanwarji [1972] 84 ITR 584, had expressed a contrary view. Following the view adopted by the Delhi High Court, the Tribunal held that the ITO had jurisdiction to proceed under s. 147(b). The assessee applied for a reference, and having regard to the difference between the High Courts on the point, the Tribunal had considered it expedient to refer the following question of law directly to the Supreme Court: " Whether, on the facts and in the circumstances of the case, the Income-tax Officer was legally justified in reopening the assessments under section 147(b) for the years 1960-61, 1961-62, 1962-63 and 1963-64, on the basis of the view expressed by the internal audit party and received by him subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person, body or authority competent and authorised to pronounce upon the law and invested with authority to do so, the audit department was not an authority competent or authorised to declare the correct state of the law or pronounce upon it and that, therefore, its opinion on the correct state of the law was not " information " which could warrant the initiation of proceedings under s. 147(b) and, on appeal, the Supreme Court, allowing the appeal, observed that, (i) that the audit department was the proper machinery to scrutinise the, assessments by ITOs and point out the errors, if any, in law, and that the intimation received by the ITO constituted " information " within the meaning of s. 147(b) in consequence of which the ITO could reopen the assessment, and (ii) neither the fact that the ITO was aware of the fact that the properties were self-occupied nor the fact that he could have with diligence found that the respondent would not be entitled to the deduction of municipal taxes, would preclude the officer from using the audit note as fresh " information " and it has further been observed that two conditions were necessary for invoking s. 147(b) i (i) The officer should rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rior to such decision. The appellant in that case derived profits from three industries, one of which qualified for the special rebate under Para. of Part I of Sch. I to the Finance Act, 1965, for the assessment year 1966-67. In granting the special rebate, the ITO computed the profits and gains attributable to that industry without deducting development rebate granted to the appellant. Thereafter, the ITO sought to rectify the mistake under s. 154 of the I.T. Act, 1961, by recomputing the profits by deducting the development rebate. The appellant filed a writ petition for quashing the notice of rectification and a single judge of the High Court dismissed the petition and, on appeal, a Division Bench of this court, allowing the writ petition, has observed in the case of ITO v. Textile Mills Agents P. Ltd. [1981] 130 ITR 733, which has been made an Appendix to the determination in Jiyajeerao Cotton Mills Ltd. v. ITO [1981] 130 ITR 710 (Cal), that it could not be said that on a plain reading of the provisions of Para F of Part I of Sch. I to the Finance Act, 1965, no two views were possible on the question whether the development rebate had to be deducted in computing the profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or initiating, the proceeding was done on the basis of the law as existing on that date or at the relevant time. In support of his submissions that the opinion or advice of the revenue audit could, in the instant case, be regarded or treated as " information " in the possession of the ITO, Mr. Pal made a pointed reference to the determinations in the case of Asst. CED v. Nawab Sir Mir Osman Ali Khan Bahadur [1969] 72 ITR 376 (SC). In that case, which was of Course under the provisions of the E.D. Act, 1953, it has been observed that the opinion of the CBR regarding the correct valuation of securities for purposes of estate duty, expressed in an appeal preferred by the accountable person is " information " within the meaning of s. 59 of the E.D. Act, 1953, as amended by the E.D. (Amend.) Act of 1958, on the basis of which the Controller can entertain a reasonable belief that property assessed to estate duty has been undervalued. Apart from the cases as mentioned hereinbefore, Mr. Bajoria also placed reliance on the determination in the case of CIT v. Assam Oil Co. Ltd. [1982] 133 ITR 204 (Cal). In that case, in the original assessment for 1960-61, the assessee had claimed deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resh return of all the items. There cannot be any doubt on the facts of this case that the reopening was sought to be under s. 147(b) of the said Act and reopening under these provisions would be possible and permissible on new information and if on the date of notice, any income had escaped assessment. On the basis of the arguments as advanced at the Bar, the effect of subsequent rectification proceedings, in which the assessee ultimately succeeded, would have to be considered. Admittedly, the ITO concerned had recorded his reasons on the basis of the intimation received by him from the revenue audit, viz, that on account of an erroneous application of law with regard to the director's medical expenses, there had been a non-assessment of income or, in other words, income had escaped assessment and that such information of the revenue audit department, constituted sufficient information, in consequence whereof, the officer concerned could assume jurisdiction under s. 147(b) of the said Act. The relevant dates of the judgment in the cases of Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC) and R.K. Malhotra, ITO v. Kasturbhai Lalbhai [1977] 109 ITR 537 (SC), whe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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